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because traders are used to seeing such predictions fail. Reuters was trading FX electronically since the early 1990s. At the tier one IB I worked for the IT b

because traders are used to seeing such predictions fail. Reuters was trading FX electronically since the early 1990s. At the tier one IB I worked for the IT budget was 500m USD a year (across products), and that was in 1997! Huge resources were thrown at automation. However, to this day, large trades in FX (> 10m USD notional) are still almost exclusively performed by humans over a telephone or over the bloomberg messaging system. That's because, no matter how much you automate stuff, there is still the 1% "edge case" scenario where something goes wrong, and when that happens, you most definitely want a human that you can "look in the eye", when you have that sort of execution risk. Remember that markets move really fast and there is a lot of risk in big trades that "go wrong" because unwinding said trade will almost certainly cost one of the sides a fortune. Also, high finance is not just about what you know. It's inevitably about who you know, about "illogical" factors such as salesperson charisma, entertainment, and most importantly, a credible personality type that understands the edge case risks. These things are very hard to replicate with a machine. You'll say they should be, that these things are unfair, but they remain a fact after many attempts at removing them have failed. As for AI, let's for now call it what it is: machine learning. Learning from the past. That's fine for recognising stop signs at different distances, angles and degrees of noise. But in finance, the past is often misleading. Sure there's trend, but there are also very big instabilities in the historical correlation matrix. Paradigms shift without you even realising it. The constant is change. AI is not good enough at that, yet. BTW, that's not to say machines are not making inroads. It's becoming almost impossible to get a decent trading job now with knowing at least R and Python to a comfortable degree, and good quant programmers cost a fortune. There's massive demand.

77pt77 10y ago
> It's inevitably about who you know, about "illogical" factors such as salesperson charisma, entertainment, and most importantly, a credible personality type that understands the edge case risks. And this is why AI/ML will never be very disruptive in law. The low-dow is: It's not about the facts, it's a social status game.
paganel 10y ago
> Also, high finance is not just about what you know. It's inevitably about who you know, about "illogical" factors such as salesperson charisma, entertainment, and most importantly, a credible personality type that understands the edge case risks That explains the LIBOR scandal.
- chillydawg 10y ago
  And virtually every scandal in human history.
  - paganel 10y ago
    We were talking about the finance industry, which some say that it should be this cold, rational thing where no "personal", charisma-based decisions are ever made, it's all based on offer and demand. Otherwise I do agree with you, our particularities as a species have caused lots of "scandals" in the past (like world-conquerors getting drunk and killing their best friends because of it), but that's to be expected, we're not robots.
dougabug 10y ago
Machine learning is "learning from data." It is not the assumption that there are no dynamics, and that the future will simply be a repetition of the past. To the extent that the future is predictable, learning from data is the best that can be done. The reality is that speech recognition, language translation, face recognition, object classification and detection, semantic segmentation, speech and image synthesis have improved by extraordinary leaps and bounds in recent years. If we used the logic that past failures inform a confident belief that future success in a challenge will inevitably fail, then we should've bet heavily against Alpha Go defeating one of the most accomplished human Go champions in the world. Self driving cars seem like a sci-fi fantasy until they become a mundane reality. There's an irrational arrogance to human beings in general, and Wall Street types in particular, regarding the specialness / non-reproducibility of their intelligence. It's not unlike the belief that people had that organic molecules were somehow special, "vital," and not synthesizable from base elements. Certainly, there's a long way to go to replicate the capabilities of a human brain, but I don't think we should exaggerate or fetishisize the human power to estimate and mitigate risk. We've seen many spectacular failures of that in recent years.
- rimantas 10y ago
  Would Alpha go beat the same human on 17x17 or 21x21? Or even 13x13? Let's not get started about self-driving cars…
  - loup-vaillant 10y ago
    Maybe not, because it has not been trained for those dimensions. Then again neither have humans (except maybe on 13x13). That could be interesting, but I'm not sure what we could learn from this.
  - educhana 10y ago
    Absolutely, both Fan Hui and Lee Sedol. https://deepmind.com/research/alphago/ https://deepmind.com/research/alphago/
    - 10y ago
eIR7TYf34lUq 10y ago
Though one of the new big players in FX doesn't have any traders [1]. [1] https://www.bloomberg.com/news/articles/2016-10-13/this-bank-beating-trading-powerhouse-doesn-t-use-human-traders https://www.bloomberg.com/news/articles/2016-10-13/this-bank...
cm2187 10y ago
> because traders are used to seeing such predictions fail. There was a joke from the 80s: soon the whole trading floor will be replaced by a computer, a man and a dog. The man presses the button to turn on the computer every morning. The computer operates all of the transactions and settlements automatically. And the dog is there to bite the man if he touches any other button. 30 years later, still no dog on the floor!
- brianwawok 10y ago
  But on the flip side, most physical trading floors are closed. Can't see the last few lasting much longer.
  - lintiness 10y ago
    yeah, i really don't know what these guys are talking about. the business day to day has been massively revamped by automation. there are hft ops that are blasting millions and millions of orders a second and probably account for 70%+ of all trading volume.
    - cm2187 10y ago
      I think you have cash equity in mind. This is a very small subset of what investment banks trade.
      - lintiness 10y ago
        i trade financial futures and cash equity. i realize ibanks offer leveraged bets on all kinds of nonsense to provide a "service", but pretty much any strategy known to humanity can be achieved on an exchange with negligible counterparty risk
        cm2187 10y ago
        Being centrally cleared to reduce counterparty risk and being traded electronically on an exchange are two distinct things. Electronic trading does change dramatically the shape and profile of a trading floor. Introducing central clearing with margining not so much. You won't achieve electronic trading anytime soon on products where there are perhaps at most 200-300 buyers in the world, must of who are only interested in buying big chunks.
pmarreck 10y ago
There's a duality of thought going on here (with apologies to the false dichotomy). One says that all intelligence is ultimately materialistic/mechanical and that all we must do is retrace these steps with electronics and we can achieve whatever we want including high-value traders. The other seems to leave room for... let's call it the "irrational" side of things. My only point here is that just about all values themselves are irrational. The same problem in trying to get a computer to recognize that the Mona Lisa (or poched eggs or Mozart or whatever) have value, is the same one that makes it hard to teach them to figure out if Tesla is still a good long-term investment etc.
shas3 10y ago
One thing we fail to consider when talking about automation is that, at the higher end, tasks are complex and (man+machine) is much much better than machine alone. Further, the time-growth of (man+machine) will asymptotically dominate (machine). This will mean people with newer skills to master (man+machine) will be hired rather than jobs just going away. So predicting a particular job going away is a futile exercise at the higher end. The lower end is different, jobs there are simple enough to fully be automated away.
WalterBright 10y ago
The trouble with stock market systems is they are great at predicting the past and pretty much useless for predicting the future. A fellow student at Caltech was developing a stock market AI in the 1970s. He was very secretive about it, and was sure it was going to make him rich. I sometimes wonder whatever happened to him.

77pt77 10y ago

> It's inevitably about who you know, about "illogical" factors such as salesperson charisma, entertainment, and most importantly, a credible personality type that understands the edge case risks. And this is why AI/ML will never be very disruptive in law. The low-dow is: It's not about the facts, it's a social status game.

paganel 10y ago

> Also, high finance is not just about what you know. It's inevitably about who you know, about "illogical" factors such as salesperson charisma, entertainment, and most importantly, a credible personality type that understands the edge case risks That explains the LIBOR scandal.

chillydawg 10y ago
And virtually every scandal in human history.
- paganel 10y ago
  We were talking about the finance industry, which some say that it should be this cold, rational thing where no "personal", charisma-based decisions are ever made, it's all based on offer and demand. Otherwise I do agree with you, our particularities as a species have caused lots of "scandals" in the past (like world-conquerors getting drunk and killing their best friends because of it), but that's to be expected, we're not robots.

dougabug 10y ago

Machine learning is "learning from data." It is not the assumption that there are no dynamics, and that the future will simply be a repetition of the past. To the extent that the future is predictable, learning from data is the best that can be done. The reality is that speech recognition, language translation, face recognition, object classification and detection, semantic segmentation, speech and image synthesis have improved by extraordinary leaps and bounds in recent years. If we used the logic that past failures inform a confident belief that future success in a challenge will inevitably fail, then we should've bet heavily against Alpha Go defeating one of the most accomplished human Go champions in the world. Self driving cars seem like a sci-fi fantasy until they become a mundane reality. There's an irrational arrogance to human beings in general, and Wall Street types in particular, regarding the specialness / non-reproducibility of their intelligence. It's not unlike the belief that people had that organic molecules were somehow special, "vital," and not synthesizable from base elements. Certainly, there's a long way to go to replicate the capabilities of a human brain, but I don't think we should exaggerate or fetishisize the human power to estimate and mitigate risk. We've seen many spectacular failures of that in recent years.

rimantas 10y ago
Would Alpha go beat the same human on 17x17 or 21x21? Or even 13x13? Let's not get started about self-driving cars…
- loup-vaillant 10y ago
  Maybe not, because it has not been trained for those dimensions. Then again neither have humans (except maybe on 13x13). That could be interesting, but I'm not sure what we could learn from this.
- educhana 10y ago
  Absolutely, both Fan Hui and Lee Sedol. https://deepmind.com/research/alphago/ https://deepmind.com/research/alphago/
  - 10y ago

eIR7TYf34lUq 10y ago

Though one of the new big players in FX doesn't have any traders [1]. [1] https://www.bloomberg.com/news/articles/2016-10-13/this-bank-beating-trading-powerhouse-doesn-t-use-human-traders https://www.bloomberg.com/news/articles/2016-10-13/this-bank...

cm2187 10y ago

> because traders are used to seeing such predictions fail. There was a joke from the 80s: soon the whole trading floor will be replaced by a computer, a man and a dog. The man presses the button to turn on the computer every morning. The computer operates all of the transactions and settlements automatically. And the dog is there to bite the man if he touches any other button. 30 years later, still no dog on the floor!

brianwawok 10y ago
But on the flip side, most physical trading floors are closed. Can't see the last few lasting much longer.
- lintiness 10y ago
  yeah, i really don't know what these guys are talking about. the business day to day has been massively revamped by automation. there are hft ops that are blasting millions and millions of orders a second and probably account for 70%+ of all trading volume.
  - cm2187 10y ago
    I think you have cash equity in mind. This is a very small subset of what investment banks trade.
    - lintiness 10y ago
      i trade financial futures and cash equity. i realize ibanks offer leveraged bets on all kinds of nonsense to provide a "service", but pretty much any strategy known to humanity can be achieved on an exchange with negligible counterparty risk
      - cm2187 10y ago
        Being centrally cleared to reduce counterparty risk and being traded electronically on an exchange are two distinct things. Electronic trading does change dramatically the shape and profile of a trading floor. Introducing central clearing with margining not so much. You won't achieve electronic trading anytime soon on products where there are perhaps at most 200-300 buyers in the world, must of who are only interested in buying big chunks.

pmarreck 10y ago

There's a duality of thought going on here (with apologies to the false dichotomy). One says that all intelligence is ultimately materialistic/mechanical and that all we must do is retrace these steps with electronics and we can achieve whatever we want including high-value traders. The other seems to leave room for... let's call it the "irrational" side of things. My only point here is that just about all values themselves are irrational. The same problem in trying to get a computer to recognize that the Mona Lisa (or poched eggs or Mozart or whatever) have value, is the same one that makes it hard to teach them to figure out if Tesla is still a good long-term investment etc.

shas3 10y ago

One thing we fail to consider when talking about automation is that, at the higher end, tasks are complex and (man+machine) is much much better than machine alone. Further, the time-growth of (man+machine) will asymptotically dominate (machine). This will mean people with newer skills to master (man+machine) will be hired rather than jobs just going away. So predicting a particular job going away is a futile exercise at the higher end. The lower end is different, jobs there are simple enough to fully be automated away.

WalterBright 10y ago

The trouble with stock market systems is they are great at predicting the past and pretty much useless for predicting the future. A fellow student at Caltech was developing a stock market AI in the 1970s. He was very secretive about it, and was sure it was going to make him rich. I sometimes wonder whatever happened to him.